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Sector deal 'the most important agreement' in UK energy this century

7 March 2019
by Craig Richard

The offshore wind sector deal will help the industry to reduce costs of UK projects by boosting local content and increasing scale, according to MHI Vestas CEO Philippe Kavafyan, while other industry stakeholders welcomed the deal.

"One reason we continue to decrease costs in the UK is its unique experience in terms of volume and efficiency," Kavafyan told Windpower Monthly.

The UK has a world-leading 8.2GW of installed offshore wind capacity and saw prices fall by a half in its last auction, held in September 2017, and could further leverage companies’ experience in project development and their facilities for local production, Kavafyan suggested.

By increasing the proportion of UK-sourced components in projects — for example, by manufacturing blades close to project sites — the offshore wind industry can save on transport costs, he explained.

"The sector deal alone is not what decides the move to local content. It’s projects," Kavafyan added.

When planning new investments in facilities for future projects "we have to think about where is most cost-effective for us and our partners", he said.

Kavafyan’s MHI Vestas has a blade facility on the Isle of Wight, which the manufacturer says is close enough to its projects.

"If we pay to import from abroad, we penalise every turbine in terms of cost. We see the benefit of localisation to reduce costs," he explained.

One of the key aims of the sector deal is to increase the number of skilled jobs in UK offshore wind from 7,200 today to 27,000 by 2030.

MHI Vestas launched a recruiting drive for its Isle of Wight plant last October to meet the demand for its V164 turbine. Kavafyan told Windpower Monthly the sector deal vindicated this investment decision.

He added that with further UK auctions planned for this year, and then every other year through the 2020s, the company would most likely look to expand further halfway through the next decade.

"Offshore wind has to be associated with adding jobs. That is logical for us and it makes sense for long-term acceptance," he said.

Industry reaction

Other companies active in the UK offshore wind sector also welcomed the announcement of today’s deal — a bespoke agreement between government and industry, through which they seek to raise productivity in the absence of support for low-carbon resources.

Matthew Wright, UK managing director at Ørsted: "Costs have been driven down dramatically so that offshore wind is now competitive with conventional forms of energy generation, and at the same time the sector has delivered jobs, investment and growth across northern towns and cities."

Ørsted aims to have spent more than £13 billion (€15.12 billion) in the UK by the end of 2021 and the confirmation of support for the offshore wind sector through to 2030 creates a strong business case for further investments, Wright said. The developer has stakes in more than 3.7GW of operating wind capacity in UK waters.

"This transformative sector deal will unlock significant additional investment from the whole industry and put offshore wind at the front and centre of the UK’s industrial strategy," he added.

Vattenfall’s head of wind and new WindEurope chair Gunnar Groebler, welcomed the ambition in the sector deal for offshore wind to supply a third of British electricity by 2030 and to contribute to low-carbon sources producing 70% of demand by the end of the next decade.

"We know that we can meet the challenge of delivering a third of UK electricity demand by 2030 in partnership with the government, underpinning the shift to a low carbon economy.

"And we know that an energy strategy that delivers a diverse workforce of tens of thousands and invests in UK businesses is vital to a successful transition.

"That is why the offshore wind sector deal should be seen as the most important agreement forged by any part of the UK energy sector this century," he said.

Andrew Jamieson, CEO of the research and innovation centre for offshore wind, ORE Catapult, said the sector deal would help UK companies boost exports.

The sector deal is designed to help the UK offshore wind industry boost exports five-fold to £2.6 billion (€3 billion) a year by 2030.

"Innovation has been at the heart of the UK’s tremendous success story to date in offshore wind and it will be vital in developing a strong, indigenous supply chain in areas such as robotics and artificial intelligence, digitalisation and enhanced operations and maintenance to capitalise on the global growth of the sector," said Jamieson.

Clark MacFarlane, managing director of Siemens Gamesa’s UK division, said that — like rival manufacturer MHI Vestas — the sector deal confirmed the confidence his company had to invest in the UK.

"Siemens Gamesa welcomes the sector deal as recognition that offshore wind can be a key driver in a buoyant low carbon economy for generations to come," MacFarlane said.

Similarly, Paul Cowling, director of offshore wind at Innogy, which has a portfolio of seven UK offshore wind farms, said the sector would boost companies’ confidence in making investments.

"The announcement of this deal will give developers like ourselves the confidence and security to develop projects into the next decade and beyond."

James Ritchie, CEO of subsea Tekmar Group, said the sector deal would benefit companies throughout the supply chain.

"Delivering (offshore wind) requires an innovative supply chain to produce effective and efficient technology and services that support the construction, operation and maintenance of offshore wind farms, which is something the north east has done successfully.

"The sector deal will support the development of supply chain clusters," he said.

WindEurope’s director for public affairs Iván Pineda, added the sector deal would help the UK cement its position as the largest European market for offshore wind — though China is set to overtake it by 2030.

"The sector deal’s not only a great example for the visibility it gives on future offshore wind volumes, but also for the model of government and industry collaboration it provides, with government committing to volumes and industry to funding the required innovation.